DDIT Vs. Western Union Financial Services Inc (ITAT Delhi)– ITAT held that the taxpayer’s agents in India were independent agents under Article 5(5) of the India-USA tax treaty (tax treaty). Accordingly, there was no Dependent Agent Permanent Establishment (DAPE) of the taxpayer in India. Further, the Tribunal observed that the taxpayer did not have right to enter and make use of the premises of the agents for its business. Accordingly, it was concluded that there was no fixed place PE of the taxpayer in India as per Article 5(1) of the tax treaty.

INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA Nos. 1572 to 1574/D/2010 With CO Nos. 163 to 165 /Del./2010

Assessment Years: 2002- 03, 2003- 04 & 2005- 06

Deputy. Director of Income-tax, International Taxation

V/s

M/s. Western Union Financial Services Inc.

Date of pronouncement- 06-01-2012

O R D E R

A.N.Pahuja:- These three appeals filed on 8/04/2010 by the Revenue and the corresponding cross-objection[CO] filed on 22nd June, 2010 by the assessee against a common order dated 1.1.2010 of the ld. CIT(A)-XXIX, New Delhi, for the Assessment Years 2002- 03, 2003- 04 & 2005- 06 , raise the following similar grounds :-

ITA nos. 1572 to 1574/D/2010[ Revenue]

“1. On the facts and circumstances of the case, ld. CIT (A) has erred in inferring that the stand alone machines where software applications of the assessee are installed and the machines are dedicated to business of money transfer cannot be treated as fixed place PE of the assessee;

2. On the facts and circumstances of the case, ld. CIT (Appeals) has erred in deciding that liaison office of the assessee in India does not constitute its PE;

3. On the facts and circumstances of the case, ld. CIT (A) has erred in inferring that representatives of the assessee in India do not constitute its Dependent Agent PE under Article 5(4) / 5(5) of the treaty;

4. On the facts and circumstances of the case, ld. CIT (A) has erred in not attributing any profits against the activities being carried out by the assessee through its PE in India.

5. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.”

CO nos.163 to 165 /Del./2010[Assessee]

“1. That on facts and in law, the ld. CIT (Appeals)-XXIX, New Delhi erred in upholding that the assessee has a ‘Business Connection’ in India under Section 9 of the Income Tax Act, 1961 (the ‘Act’);

2. That on facts and in law, the ld. CIT (Appeals)-XXIX, New Delhi erred in not appreciating that the entire income received by the assessee was such from which tax was deductible at source, the assessee could not be held to have committed default in payment of advance tax and, consequently, was not liable to pay interest under section 234-B of the Act;

3. That on facts and in law to the extent the order of the CIT (Appeals) is prejudicial to the assessee it is bad in law and void ab-initio in whole and in part. ”

2. Adverting first to ground nos. 1 to 4 in the appeals of the Revenue and ground no.1 in the appeal of the assessee for these three assessment years, facts, in brief, as per relevant orders for the AY 2002-03 are that in response to a notice dated 31.3.2007 u/s 148 of the Income-tax Act, 1961 [hereinafter referred to as the ‘Act’] the assessee, a company incorporated in USA and engaged in money transfer business world-wide, submitted return declaring nil income on 7.5.2007. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the business of the assessee included transfer of money across the world. In the business of the assessee a person in USA, if he wanted to remit money to a relative in India, approached the agents of the assessee in USA and paid the money in dollars together with the charges. He would be given a receipt by the assessee along with a computer-generated unique 10 digit number referred to as MTCN (Money Transfer Control Number). The remitter would send the said unique number to his relative in India ,who would approach the assessee’s representative/agent in India. There upon MTCN would be fed into the computer with the help of a software and the mainframe computer of the assessee in the USA was accessed by the agent. After matching the number and satisfying himself about the identity of the recipient/claimant, the money would be paid to the claimant in India. For these services, the agent was remunerated by the assessee by way of a commission at an agreed percentage.

2.1 For the purpose of carrying on its business in India, the assessee entered into agreements with the agents i.e. Department of Posts, commercial banks, non-banking financial companies and tour operators. Generally the agents would be appointed for a period of 5 years in the beginning and period could be extended thereafter. The agents were remunerated @ 30 per cent in the case of the Department of Posts and 25 per cent in the case of others, of the money handed over by the agent in India. This percentage would be reduced if the assessee assumed the responsibility for advertising and promotion of the services in India or established a customer service centre to handle telephonic queries. One other feature of the agreement noticed by the AO was that the money would be first paid out by the agent in India and thereafter, he would be reimbursed the same together with the commission due to him. This commission was termed as the “base compensation” in the agreement. The agent had also been given the power to appoint sub-agents/representatives. However, it was the responsibility of the agents to pay the sub-agents. The assessee could ask the agent to terminate the services of a sub-agent if it was found that the sub agent was acting in a manner prejudicial to the interests of the assessee. Besides, there were the usual clauses providing for security and confidentiality and reserving the intellectual property rights of both the parties in the trade names, trademarks, copyrights etc. belonging to them apart from enjoining the agent to maintain records of all the transactions of money transfer routed through him.

2.2 For its business in India, initially, the assessee ,with the approval of RBI opened a liaison office in India. The activities of the liaison office and the terms and conditions stipulated in the approval of the RBI are detailed in the order of the ITAT for the AY 2001-02. Subsequently, the assessee opened additional liaison offices in Bangalore and Gurgaon, the Mumbai office being called the “nodal LO”. Though the assessee claimed that the activities of the liaison office were preparatory and auxiliary in nature, the AO was of the opinion that these liaison offices were actively engaged in marketing for the assessee, negotiating with agents, send the agents to USA for training and installing as also use of software and solving day to day problems in the normal course of business. Moreover, the employees of the assessee in liaison office would co¬ordinate with the agents .Thus, the liaison office actively participated in the business of the assessee in the form of marketing, appointment of agents, brand building, providing software to the agents and imparting training to them in India. In nutshell, the AO was of the opinion that liaison office was a virtual projection of head office in India. While referring to his findings in the assessment order for the AY 2004-05 and the fact that the assessee subsequently closed liaison office and established a subsidiary namely Western Union Services India Pvt. Ltd, the AO concluded that activities of the liaisons office were not of preparatory or auxiliary in nature. The AO further observed ,while referring to Articles 5 & 7 of the DTAA between India and USA as also OECD commentary that the assessee was liable to tax in India as it was carrying on business in India through a permanent establishment within the meaning of article 5 of the DTAA, the activities of liaison office being more or less same as that of head office and thus, liaison offices constituted PE of the assessee company in India. Moreover, the assessee had a PE in India in the form of various dedicated systems installed in the premises of various agents through which the business was carried on. There was a fixed place of business at the premises of each agent, where the software was installed. The software ensured connectivity between the assessee and the premises of the agent. The agents were “dependent agents” within the meaning of article 5.4(a) of the DTAA. For instance, the annual report of Wall Street Finances Ltd. for the AY 2004-05 revealed that out of their total income of ~2296.86 lacs, ~950.30 lacs were received from the assessee , thereby reflecting the economic dependence of one of the agents. Likewise, most of the agents were economically dependent on the assessee company, agents being dependent upon technology and software. According to the AO, the agents were not independent agent within the meaning of Art 5(5) of the DTAA. The AO further observed that the agents were ,in fact, dependent agents as revealed from an agreement between the assessee and Weizmann Ltd., which prohibited the latter from carrying on a similar business during the term of the agreement and for a period of 6 months after the expiry of the agreement, which showed that Weizmann was working wholly and exclusively for the assessee. The case of other agents was the same. Further, they had the authority to conclude contracts on behalf of the assessee in the sense that they carried out in India the commitment given by the assessee that the money would be paid. The agents were also given the authority to appoint sub-agents. The compensation paid to the agents was not adequate in comparison to the revenue received by the assessee for the work. The main part of the transaction- the payment of the money to the claimant was carried out by the agents in India and thus, merited adequate compensation. Since the compensation paid was not adequate, the transaction was not at arm’s length, the AO concluded

2.3 The AO further observed that the assessee had a business connection in India, as it had a full-fledged office in India which was conducting aggressive marketing activities together with negotiations with the agents, providing software to them and imparting training about the product. There was continuity of the transaction which was completed only when the money was paid to the claimant in India through the agents. While referring to the findings of the ITAT in the AY 2001 -02, the AO concluded that there was “business connection” in India and the assessee was liable under section 9(1) of the Act to pay income-tax on the profits arising from its activities in India.

2.4 The AO also pointed out that the ITAT in assessee’s own case for assessment year 2001 -02 did not correctly appreciate the activities of the liaison offices and the judgment in M/s. Mitsui and Co. 39 I.T.D. 59 was distinguishable on facts. While referring to OECD commentary, the decision of AAR in UAE Exchange Centre LLC, the AO observed that the agents in India were even provided with a software to access the connectivity and the application software installed in stand-alone machines, having in¬built dial up modems at various branches and sub agent locations. These systems had not been on the agents’ network and were driven by a user ID and these were validated by a terminal ID, which automatically connected to the international host server of Western Union for marking of transactions as well as storage of data. Since Western Union provided software ‘Voyager 2.16’ to agents a software which generated a complete summary of transactions of Western Union handled by the agents/ bank, these stand-alone machines where Western Union Financial Services Inc. applications were installed and dedicated to the business of money transfer, can be construed as facilities used for carrying on the business of the enterprise as stated in the OECD commentary even if the premises and facilities were not owned or rented by the assessee company but belonged to the representative of the assessee in India.

2.5. The AO also rejected the claim of the assessee that the whole income earned as commission was not taxable in India since the fee had not been received in India. While observing that since fees were paid for service in India, the amount was taxable in India alone, the activities of the agent on behalf of the assessee being undertaken in India. Accordingly, the AO brought to tax income of the assessee in these three assessment years as under :-

AY

Total Commission

Rate

Net Profit

50% of the commission

[In Rupees]

[In Rupees]

[In Rupees]

2002-03

729572745

22.89 %

166999201

83499600*

2003-04

1181936497

13.65 %

161334332

80667166*

2005-06

841138974

23.98 %

201705126

100852563*

* The entire operations for money transfer business of the assessee having not been in India ,accordingly 50% alone brought to tax.

3. On appeal, the ld. CIT (Appeals) following the decision dated 10.3.2006 of ITAT in the assessee’s own case for assessment year 2001 -02 in ITA no. 4889/Del/2004,reported in 104 ITD 34(Del.), concluded that since facts of all assessment years under consideration were the same as these were in the AY 01-02, the findings of ITAT in respect of existence of business connection & PE shall apply to these assessment years as well. Accordingly, it was held that the assessee had a business connection for all the relevant assessment years but did not have a PE in India.

4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT (Appeals). The ld. DR, in his written submissions, while narrating the facts of the case, merely relied upon a decision of a co-ordinate Bench of ITAT Delhi in Amadeus Global Travel Distribution SA, reported in 113 TTJ 767 (Del) and submitted as under:

“…. It is to be noted that decision of Hon ‘ble ITAT in assessee’ own case is dated March 10, 2006, whereas decision in case of Amadeus Global Travel Distribution SA is dated November 30, 2007 and therefore a later one. The vital facts in that case are that the assessee, a tax resident of Spain has developed a fully automatic computer reservation and distribution system, with the ability to perform comprehensive information. communications. reservations, ticketing, distribution and related functions on a worldwide basis for the travel industry, particularly participating airlines, hotels etc. (hereinafter referred to as ‘CRS’). Various Airlines all over the world have entered into ‘Participating Carriers Agreements'(the ‘PCA ‘) with the assessee for display of their information/products. etc. through the CRS. The assessee receives payment from the Airlines in the form of ‘booking fee’. which is computed on the basis of the ‘net booking’ made through use of CRS .. In order to promote the use of CRS in various countries. the assessee has entered into ‘Distribution Agreement’ (‘the DA ‘) with a National Marketing Company (NMCs) incorporated in India, viz . Amadeus India Pvt. Limited. (AIPL). for distribution/marketing of the CRS in India. As per the DA. AIPL is required to seek subscribers to the CRS (normally travel agents) and enter into ‘Subscribers Agreement'(‘the SBA ‘) with them. The job of AIPL is to canvass the use of CRS in India and enter into contract with the subscribers/ travel agents willing to use CRS for which it receives ‘distribution fee’from the assessee. As per the provisions of the SBAs. AIPL trains the subscribers/ travel agents regarding the use of the CRS. Further, AIPL also provides the subscribers/travel agents access/connectivity to the mainframe of the assessee located in Germany and the Airline’s inventory base. In India. connectivity is provided by SITA. using the DOT, MTNL or VSNL leased lines The travel agents systems arc connected to AIPL’s computer and the request for information is channelized through AIPL’s computer. AIPL identities/authorizes the travel agent as a valid CRS user and processes the request for information into relevant segments. It is to be noted that business process involved in business of the assessee starts in Spain and is completed in India and entire process is done on an software. Hon ‘ble IT AT has held on basis of these facts that.-

“23.1 In the present case it is seen that the CRS, which is the source of revenue is partially existent in the machines namely various computers installed at the premises of the subscribers. In some cases, the appellant itself has placed those computers and in all the cases the connectivity in the form of nodes leased from SITA are installed by the appellant through its agent. The computers so connected and configured which can perform the function of reservation and ticketing is a part and parcel of the entire CRS. The computers so installed require further approval from AIPL who allows the use of such computers for reservation and ticketing. Without the authority of AIPL such computers are not capable of performing the reservation and ticketing part of the CRS system. The computers so installed cannot be shifted from one place to another even within the premises of the subscriber, leave apart the shifting of such computers from one person to another. Thus the appellant exercises complete control over the computes installed at the premises of the subscribers. In view of our discussion in the immediately preceding paragraph, this amounts to a fixed place of business for carrying on the business of the enterprise in India. But for the supply of computers, the configuration of computes and connectivity which are provided by the appellant either directly or through its agent AIPL will amount to operating part if its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have established a PE within the meaning of paragraph 1 of Article 5 of Indo- Spain Treaty.”

Hon ‘ble IT AT has further held that:-

“23.2 The next question to be considered is if there is a permanent establishment, whether the exception provided in paragraph 3 of Article 5 applies so as to hold that there is no permanent establishment in India. The case for the appellant is that the existence of such computers are merely for the purpose of advertising and the activities are or auxiliary in character and hence there is no fixed place PE in India in view of the Explanation provided in paragraph 3 of Article 5. We are unable to accept such a contention. The function of the PE in India is not only to advertise its products. The activity of the appellant is developing and maintaining a fully automatic reservation and distribution system with the ability to perform comprehensive information, communication, reservation, ticketing, distribution and related function on a worldwide basis. The computers installed at the premises of the subscribers are connected to the global CRS owned and operated by the appellant. Using part of the CRS System, the subscribers are capable of reserving and booking a ticket. Thus it cannot be considered as “solely for the purpose of advertising” of such CRS system. Similarly it is not in the nature of preparatory or auxiliary’ character. It is difficult to distinguish between the activities which are, ‘preparatory or auxiliary’ character and those which are not. The decisive criterion is whether or not the activity of the fixed place of business in itself forms an essential and significant part of the activity of the enterprise as a whole. Since part of the function is operated in India which directly contributes to the earning of revenue, the activities as narrated above carried out in India is in no way of ‘preparatory orauxiiary’ character. Thus the exception provided in Paragraph 3 of 5 will not apply and hence as stated above, the assessee shall be deemed to have permanent establishment in India.”

Further in para 23.3, Hon ‘ble ITA T has held that there exist dependent agency PE Thus, it is seen that Hon ‘ble ITAT has taken a different view regarding existence of PE in a case subsequent to that of assessee itself where vital facts were similar. In view of this, it is submitted that matters under appeal may be decided by following later decision of co-ordinate bench of Hon’bIe IT AT in case of Amadeus Global Travel Distribution SA or if the Hon’ble bench deems fit, the matter may be referred to special bench. Regarding CO by the assessee, the issues raised are consistently decided by Hon’ble ITAT in both the cases referred above. “

5.. On the other hand, the ld. AR on behalf of the assessee in their written submissions, distinguished the decision relied upon by the ld. DR ,explaining the dissimilarities in the two decisions as under: :-

“(i) Whereas Amadeus case deals with initiation of contract in India, estern Union’s case deals with execution of contract outside India. This is because in Amadeus’s case the source of income was in India due to the order booking activity carried out by the travel agents through CRS systems in India. In this case it has been held by Hon ‘ble ITA T at page 851, para 23.2 of TTJ citation that “The computers installed at the premises of the subscribers are connected to the global CRS owned and operated by the appellant. Using part of the CRS system, the subscribers are capable of reserving and booking a ticket”. Whereas in the case of Western Union in the absence of such activity in India (as order for money transfer takes place entirely outside India), there is no source of income in India. In Western Union’s case it has been held by the Hon’ble ITAT (at page 73, para 40) that “the contract is between the remitter abroad and the assessee. It is entered into outside India. The agents are not party thereto. The agents merely carry out the concluding step in the arrangement embodied in the contract. In other words, the assessee undertakes outside India to transfer the money to India. It is only the payment part of the undertaking that is executed by the agents in India. The contract is already concluded outside India.” To the similar effect is the finding recorded by Hon’ble Delhi High Court in the case of UAE Exchange Control reported in 313 ITR 94 (Del) relevant at page 114, para 34 of ITR citation. It will be relevant to state here that UAE Control’s case also pertains to the business of money transfers to India.

(ii) In the case of Amadeus, the customers of the travel agents are in India; whereas in the case of Western Union, no customers of Western Union or its representatives are in India.

2. Once there is dissimilarity of facts then the same is bound to affect the conclusion drawn on existence of PE -It is submitted that the conclusions recorded by Hon ‘ble ITA T in both these cases on existence of PE are also influenced by the difference in facts of each case. A comparative chart in this regard is as under:

Existence of PE

Amadeus’s case

Western Union’s case

Fixed Place PE

In Amadeus’s case, Hon’ble ITAT concluded on facts that the computers installed in agents offices were supplied by Amadeus / AIPL and they exercised a great degree of control over these computers in as much as the computers cannot be used without the permission of Amadeus/AIPL and they can’t even be shifted from one place to another without permission. It was because of this control that the Hon’ble ITAT concluded that fixed place PE exists within the meaning of para 1 of Art. 5 of India-Spain treaty {kindly refer page 851, para 23.1 of TT J citation).

In this case, the assessee does not exercise/possess any control over the computer systems which are independently owned by agents and are not provided by the assessee. It has been held by Hon’ble IT AT in this case that “The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business”. It has been further been held By Hon’ble ITAT that under Art. 5.2(j) an Installation may amount to a PE Provided it is used for the exploration of natural resources which is not relevant to the instant case (Page 63, top para and page 65, top para of ITD citation.

Agency PE

In Amadeus’s case it has been held by Hon’ble ITAT that :

a) “In the present case we find that AIPL is totally dependent on the appellant. The entire business of AIPL is to provide data and software services together with relative of ‘Amadeus products’ to the subscribers in India.” (page 852, para 23.3 of TT J citation)

b) “Thus AIPL can be said to have and having exercised an authority to conclude contracts on behalf of the appellant. What the appellant could have done directly by entering into an agreement with the subscribers, was done through AIPL. The subscribers agreements were entered into by AIPL under an authority available to it in view of the distribution agreement. What could have been done directly is now done indirectly through the offices of AIPL under an authority granted to it. “(pages 852 and 853, para 23.4)

Whereas in Western Union’s Case it has been held by the Hon’ble ITAT that :

a) The activities of the agents were not wholly or almost wholly devoted on behalf of the assessee (pgs. 67 to 69, paras 33 and 34 of ITD citation), and that the agents are not ‘dependent agents’ of the assessee and that

b) The agents have no authority to conclude contracts in India on behalf of Western Union (pages 72 and 73, paras 39 and 40 of ITD citation).

3. Western Union’s case has been considered by the Hon’ble ITAT in Amadeus’s case – It is submitted that Western Union’s case was taken into consideration by Hon’ble ITAT while passing orders in Amadeus’s case. In fact while arguing Amadeus’s case, the Ld DR concurred with the findings/ratio of Western Union’s case on the issue of Software PE. It is submitted that considering that facts of both Amadeus’s case and Western Union’s case were poles apart, the Hon’ble Bench did not doubt the ratio of Western Union’s case.

C. To conclude, it is submitted that the order passed by Hon’ble ITAT in Amadeus’s case has no relevance in the instant case considering that the findings recorded by Hon’ble ITAT therein are based on an entirely different set of facts. Reference in this regard is invited to the judgment of Hon’ble Bombay High Court in the case of Sandvik Asia reported in 267 ITR 78(Bom) wherein at page 97 it has been held by the Hon’ble High Court as under:

” With the above ruling it was held that in order to understand and appreciate the binding force of a decision it is always necessary to ascertain the facts in the case in which the decision is given and what is the point which has been decided and no judgment can be read as if it were a statute nor a word or a clause or a sentence in the judgment be regarded as a full exposition of law.”

It is submitted that the request made by Ld CIT(DR) for constitution of a Special Bench should also not be accepted considering that, for reasons stated above, there cannot be any conflict in the views adopted by Hon’ble ITAT while passing orders in both these cases since both these decisions rest on the pillars of their own facts. As such, it is requested that captioned appeals may kindly be decided by following orders passed by Hon ‘ble ITA T in assessee ‘s own case for AY 01-02. ”

6.. We have heard both the parties and gone through the facts of the case as also the written submissions filed on behalf of both the parties. Adverting first to the issue as to whether in the facts and circumstances before us , the decision of the ITAT in the assessee’s own case for the AY 2001-02 ,followed by the ld. CIT(A) is applicable or the subsequent decision of the ITAT in Amadeus Global Travel Distribution SA(supra),relied upon by the ld. DR, rendered on the facts of its own. The ld. DR appearing before us did not even attempt to explain the similarities between facts and circumstances in these two decisions. In the instant case, the ld. CIT(A) concluded that facts and circumstances in the years under consideration are similar to facts and circumstances in the AY 2001 -02,wherein the ITAT on the existence of PE & business connection, concluded as under:-

“19. The result is that the case in hand has to be approached first from the point of view of the Act and it is required to be seen if any tax liability arises. In case no tax liability arises under the Act, nothing further requires to be done. But if there is a tax liability arising under the Act, it is open to the non-resident (foreign enterprise) to claim that either there is no or less tax liability if the provisions of the DTAA are applied and if such a claim is made it has to be enquired into. If the claim is found to be correct, then it has to be given effect in preference to the provisions of the Act. Thus, in the present case we need to first examine whether the income-tax authorities are right in applying section 9 of the Act to hold that there is a business connection. Only if we find that there is a business connection, need we examine the DTAA (with USA) to find out if the case can be brought under those provisions as claimed by the assessee. We proceed accordingly.

1. Is there a business connection?

20. This question need not detain us long for the reason that the term “business connection” is so broad in scope according to the judgments that it is not possible to hold in the present case that there was no business connection. Explanation 2 inserted below section 9(1) by the Finance Act, 2003 with effect from 1-4-2004 expands the scope of the expression. Though the Explanation does not apply to the year under consideration, even applying the tests laid down in decided cases, the issue has to be resolved against the assessee. In CIT v. R.D. Aggarwal & Co. [1965] 56 ITR 20 the Supreme Court held that the expression means something more than a business, that it presupposes an element of continuity between the business of the non-resident and the activity in the taxable territory though a stray or isolated transaction would not be taken in, that the connection may take several forms, that it may include carrying on a part of the main business or activity incidental to the non-resident through an agent or it may merely be a relation between the business of the non-resident and the activity in the taxable territory which facilitates or assists the carrying on of that business. We are of the view that applying these tests to the present case, particularly the test underlined by us, it must be held that there is a business connection. The business of the assessee is to transfer monies across countries. There is thus a receiving aspect and a paying aspect to the transaction. They cannot be segregated; to do so would be artificial. There is a seamless integration between the two. The transaction, as has been rightly noticed by the income-tax authorities, is not complete unless the monies are paid in India to the claimant. Further, the agreements with the agents are initially for a term of 5 years, renewable for periods of one year at a time, but this could go on endlessly. The agents are bound to render services for the assessee as stipulated in the agreements. The agreement provides for security and confidentiality. The assessee has provided the software to the agents, though retaining the copyright in the same, to enable them to access the assessee’s mainframes in the USA. All these are in our opinion sufficient to justify the conclusion that there is business connection within the meaning of section 9(1) of the Act. We uphold the conclusion of the income-tax authorities to this effect.

2. Is there a PE of the assessee in India?

21. Under this head we propose to examine whether there is a PE as alleged by the income-tax authorities under any of the four categories: (a) fixed place PE; (b) dependent agents PE; (c) software as PE or (d) LO as PE. Before doing so, a clarification has to be made. A question may arise as to whether, having held that there is a “business connection” it is at all open or necessary to examine the question whether there is a PE. In other words, a doubt may arise as to whether there is any difference between the two concepts – the concept of “business connection” and the concept of “PE” – and whether once a foreign enterprise is found to have a business connection in India, can it not also automatically be held to have a PE in India. It appears to us that there is a distinction between the two. “Business connection” seems to us to be a much wider concept than a PE. The former has not been statutorily defined whereas the latter has been defined in the DTAA where the criteria has been more specifically laid down. The Board in its Circular No. 23 dated 23-7-1969, referred to before us in a different context, recognizes that the “expression ‘business connection’ admits of no precise definition”. The following passage from pages 1.149-1.150 of Part 1 of the “Commentary on Double Taxation Avoidance Agreements “by S. Rajaratnam and B. V. Venkataramaiah may be usefully referred to in this behalf:

“While the concept of business connection earlier enacted as part of the law is a test of nexus in Indian law, permanent establishment is now a concept universally accepted for purposes of relief under Double Tax Avoidance Agreements. Where there is no business connection, there may not be any liability under the Indian law, unless there are other specific provisions as for royalty, technical fees, interest and salary as provided under section 9 of the Act. Where there is no liability under the Indian law, there is no need for considering the further question, whether the same set of facts could justify the inference of permanent establishment. Since there could be no liability in domestic law, the question of application of the concept of permanent establishment does not arise.

Having a mere liaison office for example, which could be treated as an office in India, may not constitute business connection in the absence of any role which liaison office plays in finalization of contracts of such other business needs, but merely acting as a post office. But the existence of the office itself may constitute permanent establishment but still there may be no liability, because either in the concept of business connection under section 9 or in the concept of permanent establishment under DTAA, there should be income arising out of such business connection in Indian law and from the permanent establishment under the DTAA ” The learned authors proceed to opine that for understanding the meaning of business connection one has to particularly go by the precedents under the Indian law, while the permanent establishment is a concept which “finds almost identical definition in almost all the DTAAs, which are modeled on UN or DECD drafts, the result being that the decisions under different agreements in different countries can offer guidance though these are not binding on domestic courts, but have only a persuasive value.”

22. In Advance Ruling A.No. P-8 of 1995, In re [1997] 223 ITR 416 (AAR), the authority taking through Hon’ble Justice S. Ranganathan expressed that “There may be a difference in the scope of these concepts in some cases but, for the present case, we can assume that it is the same as it is the subsidiary company which is being looked on as the business connection or the permanent establishment for ABC in India”.

(a) Fixed place PE:

23. Article 5.1 of the DTAA says that PE means a fixed place of business through which the business of an enterprise is wholly or partly carried on article 5.2 includes several places as a PE of the foreign enterprise. Neither the Assessing Officer nor the CIT(A) has pin-pointed which particular description of the PE in article 5.2 would apply to the assessee. The general definition of the PE in the first part of the article postulates (a) the existence in India of a fixed place of business in India and (b) that the business of the foreign enterprise shall be carried on (wholly or partly) through the said place. The assessee admittedly does not have an outlet of its own in India. That way, there is no fixed place of business in India. A PE should project the foreign enterprise in India. The assessee before us has appointed different agents in India. These agents are the Department of Posts of the Government of India, commercial banks, non-banking financial companies and tour operators. These agents have their own or hired premises from which they operate. All that they have to show that they are agents of the assessee is a display board which shows that they are the agents of the assessee. This cannot by any stretch of imagination amount to projection of the assessee in India. It cannot be postulated that the post offices of the Department of Posts which functions under the concerned Ministry of the Government of India would permit themselves to be looked upon as projecting the presence of Western Union Financial Services Inc., in India! The same would be the case of commercial banks such as the Karnataka Bank Ltd., Bank of Punjab Ltd., etc. and others which have been appointed agents. They have their own presence and business with which they are perhaps more concerned and may be surprised to find themselves characterised as projecting the assessee in Indian soil. There is no evidence to show that the assessee can, as a matter of right, enter and make use of the premises of these agents for its business. We therefore hold that there is no fixed place PE of the assessee in India within the meaning of article 5.1 of the DTAA.

(b) !s LO the fixed place of business (and hence a PE)?

24. That takes us to the more important aspects of the broader question. The first is whether the LO can be considered to be the fixed place of business of the assessee in !ndia. Under article 5.3(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character cannot be considered to a PE. We have already noticed the activities which the LO has been authorized to carry on in !ndia. !t has acted as communication link between the agents and the assessee’s head office, has trained and installed agents after obtaining approval from the RB!, has visited the agents and offered training and refresher courses in connection with the operation of the assessee, about the standards of service and security, accounting procedures, telecommunication systems and configuration, merchandising standards etc. !t has also helped the agents to overcome the Y2K problem. !t has organized local production of posters for display at the agents’locations. Further, the LO has facilitated the visit of the Director Operations of the assessee to the agents so that he can satisfy himself about the quality standards. Finally, the LO has provided the management software (VOYAGER) to the agents (free of cost) and trained their staff on the usage and versatility thereof. These activities are in line with the activities mentioned in the annexure to the application to the RB! seeking permission to open the LO. We have already extracted those activities in the earlier part of our order. The annexure also states what activities will not be undertaken by the LO. There are no activities which the LO has undertaken, which do not conform to the list of activities given in the annexure. There is no allegation of any violation of the conditions of approval.

25. On the above facts, we are of the view that the LO cannot be considered to be the fixed place PE of the assessee as it carries out activities which are of a preparatory or auxiliary character. !t has not carried on any trading activity for the assessee in !ndia. !t has only a small number of executives and a support staff. The LO has also filed status reports to the RB! listing out the activities which it actually carried on during the years. None of the activities can be described as anything other than of preparatory or auxiliary character. !n UAE Exchange Centre LLC, !n re, the AAR noticed that the applicant, which was engaged in money transfer business, had adopted the mode of remitting money to !ndia through the liaison offices in !ndia. The LOs downloaded the data about the beneficiaries in !ndia, printed cheques/drafts and dispatched them to the beneficiaries. On these facts, it was held that the LOs constituted PE in !ndia. The test laid down by the AAR was that the role of the LO should be nothing short of performing the contract of remitting the amounts at least in part, before it could be called a PE of the foreign enterprise. The performance of the contract of remitting the amounts, at least in part, was held to constitute an essential activity in the performance of the contractual obligation, and such activity was held not to constitute an auxiliary activity. !n the present case, the LO performs no part of the contract of remitting the money into !ndia. Further, as we have already noticed from the nature of the activities carried on by the LO, its activities can properly be called auxiliary or preparatory in nature. We therefore hold that the LO cannot be considered to the PE of the assessee in !ndia.

(c) Is the software “VOYAGER” the PE of the assessee?

26. The department has made out a case that the software, which affords access to the agents to the assessee’s mainframe, computers in USA for the purpose of finding out the matching of the MTCN numbers, has been installed in the premises of the agents and hence taken together with the premises constitutes the PE. The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business. The software is the property of the assessee and it has not parted with its copyright therein in favour of the agents. The agents have only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the purpose from the premises of the agents cannot in our opinion lead to the decision that the premises-cum-software will be the PE of the assessee in India. Under article 5.2(j) an installation may amount to a PE provided it is used for the exploration of natural resources. Therefore, even if the software is to be considered as an installation, since it is not used for exploration or exploitation of natural resources it cannot per se be treated as a PE.

(d) Credit cards and PE:

27. Though the Assessing Officer has stated that the assessee permits the use of credit cards for drawing cash from its outlets in India, this has been specifically denied before the CIT(A) in writing (letter read out before us). The CIT(A) has not doubted or rejected the denial. Even before us, the learned CIT(DR) did not touch the point. There is no material to which our attention has been drawn, either in the assessment order or in the course of the arguments before us, from which it can be gathered that the assessee permitted withdrawal of monies from its outlets by the use of credit cards. In fact, the existence of the assessee’s own “outlets” in India has been stoutly denied. The observations of the Assessing Officer not being supported by any evidence and the CIT(A) not having specifically approved them, we hold that there can be no PE on account of the use of the credit cards.

Agency PE:

28. The stand of the income-tax department is that the agents are not “independent agents” under article 5.5 of the treaty but are “dependent agents” under article 5.4(a) of the treaty.

29. (A) Are the agents “independent agents”?

30. We shall first address the question whether the agents are “independent agents” under article 5.4. Three conditions are required to be satisfied in order that an agent may be said to be an independent agent: (1) he should be acting in the ordinary course of his business; (2) his activities should not be devoted wholly or almost wholly on behalf of the foreign enterprise for whom he is acting as agent and (3) the transactions between the foreign enterprise and the agent should be at arm’s length.

31. The argument of the learned CIT (DR) was that the agents were not carrying on the activity in the ordinary course of their business. What is “business” has been explained in various decisions. In the leading case of Narain Swadeshi Weaving Mills Vs. CEPT [1954] 26 ITR 772 the Supreme Court explained that business connotes some real, substantive and systematic course of activity or conduct with a set purpose. In Liquidators of Pursa Ltd. Vs. CIT [1954] 25 ITR 265, the Supreme Court held that underlying the expression “business” is the fundamental idea of continuous exercise of an activity. In Barendra Prasad Ray Vs. ITO [1981] 129 ITR 295 the Supreme Court again held that the word is of wide import and means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earning income. Therefore any activity which is being systematically and continuously carried on with the object of earning profits is a business activity. That way, the activity engaged in by the agents of paying the monies to the beneficiaries or claimants in India, after satisfying themselves about their identity and after accessing the MTCN number to verify the genuineness of the claim, amounts to carrying on of the business of money transfer. The agreement of agency is initially for a period of 5 years and to be renewed for successive periods of one year each. The agents could appoint sub-agents for carrying out the activity. They have to maintain records and measure up to the standards set by the assessee. They have received training from the assessee in the use of the software and in the communication systems. All these are activities which are carried on systematically and continuously with a set purpose and hence amount to business.

32. But then Mr. Rajnish Kumar contended that this was not an activity in the “ordinary course of the business” of the agents, as their ordinary business is in local money transfer in the case of the Department of Posts and banks and not in trans-border money transfer and that in the case of non-banking financial companies and tour operators appointed as agents money transfer business, whether locally or internationally, is not in their ordinary course of business. In the case of the Department of Posts, it is well-known that they accept money orders for transfer of funds within India. Engaging themselves in the same type of business with international ramifications is just an extension of their business. It cannot be said that it is not in the ordinary course of their business. The same is the case with commercial banks. Though strictly speaking it may not be part of their banking business, as the expression is defined in the Banking Regulation Act, 1949 and as contended by Mr. Rajnish Kumar, still it is nobody’s case that it is not a lawful activity which they have embarked upon. In fact, they have obtained the approval for such activity from the RBI under section 3(c) of the FEMA. The approval granted by the RBI to Bank of Punjab Ltd. has been filed in the paper book. Though the approval is only for the purpose of FEMA, as rightly pointed out by the learned CIT(DR), the activity engaged in would still, in our opinion, amount to a business, though not banking business, because it has been carried on systematically and continuously with the objective of earning commission. Having regard to the variegated services provided by the banks these days, which cannot be ignored, all with a business motive, it seems to us too technical an objection to say that the activity carried on by the assessee’s agents in India is not a business activity in the ordinary course of their business. Non-banking financial companies deal with money belonging to others and the activity of paying out monies on behalf of the Western Union Financial Services Inc., must be viewed as part of their business activity. In the case of tour operators, acting as agents of an established firm engaged in the international money transfer business may be conducive to their business. A broad view of the matter has to be taken in these matters. We are therefore satisfied that the objection of the Department cannot be accepted.

33. The second question to be considered is whether the activities of the agent are wholly or almost wholly devoted to the assessee. So far as the Department of Posts and commercial banks are concerned, the objection of the Department cannot be countenanced at all. The Department of Posts, as noted earlier, functions under the aegis of the concerned Ministry of the Government of India. Its main activity is to serve the public in India in the matter of sending/ receiving letters, parcels, packets etc. within or to/from outside India, money orders within India, maintaining small savings account in several forms such as savings certificates, time-deposit accounts, postal life insurance etc. They have a vast network throughout the country. They are a service organization for the benefit of the general public and it would be a misnomer to say that their activities are wholly or almost wholly devoted to the Western Union Financial Services Inc., of the USA. The income-tax authorities have not brought out any data, as they ought to have, to show that the activities undertaken by the Department of Posts on behalf of the assessee herein constitute such a large part of their activities that it can be said that the Department of Posts are dependent on the assessee for their revenues. The position is the same in the case of commercial banks, non-banking financial companies and tour operators appointed as the agents of the assessee. There is no evidence to show that the extent of their activities for the assessee, compared to all their activities, is so large that it can be said that they are dependent on the assessee for their earnings or revenues. The agents in the present case have not been shown to be economically dependent on the assessee. The income-tax authorities have stated that the agents have not acted in that capacity for any other entity engaged in the money transfer business and therefore their activities are wholly or almost wholly devoted to the assessee. We do not see how this conclusion follows. The agents, as we have seen earlier, have their own businesses or activities amounting to business. They are not carrying on the activity for the assessee, as agents, in exclusion of their other businesses or activities. In this situation, just because they are not acting as agents for any other company carrying on money transfer business it cannot be said that their activities are wholly or almost wholly devoted to the assessee.

34. The learned CIT(DR) has drawn our attention to paragraphs 36 to 38.8 of the revised commentary on the OECD model and has relied on the same in support of his argument that the agents in the present case are not independent agents within the meaning of article 5.5 of the DTAA. The commentary discusses what in general are the tests to be applied to ascertain whether the agent is an independent agent or not. The extent of legal dependence or control, the undertaking of risks, the fact whether the agent is subject to the control of the principal for the manner in which the work is to be carried out etc. have been discussed. Much of the discussion loses relevance to the controversy before us where we have to apply article 5.5 which requires that the activities of the agent must be wholly or almost wholly devoted to the foreign enterprise. This is the test laid down in the article. Even on this aspect, paragraph 38.6 of the revised commentary has this to say:

“Another factor to be considered in determining independent status is the number of principals represented by the agent. Independent status is less likely if the activities of the agent are performed wholly or almost wholly on behalf of only one enterprise over the lifetime of the business or a long period of time. However, this fact is not by itself determinative. All the facts and circumstances must be taken into account to determine whether the agent’s activities constitute an autonomous business conducted by him in which he bears risk and receives reward through the use of his entrepreneurial skills and knowledge. Where an agent acts for a number of principals in the ordinary course of his business and none of these is predominant in terms of the business carried on by the agent legal dependence may exist if the principals act in concert to control the acts of the agent in the course of his business on their behalf.”

What we thus understand from the language used in article 5.5 is that the agent’s activities for the foreign enterprise must constitute a large chunk of all his activities taken together so that it can be said that he is economically dependent largely on the activity. Nothing has been brought on record to suggest this. Even if you take the risk factor, the “to send” specimen form which was filed before us in the course of the hearing while explaining the transaction makes it clear on the reverse that the assessee will be liable to refund the principal amount of a money transfer (at the applicable rate of exchange at the time the refund is made) upon the written request of the sender if payment to the recipient is not made within 30 days excluding Sundays and holidays and that the same will be the case of the fees charged. It goes on to say that the assessee or his agent will in no case be liable for damages for the delay, non-payment or underpayment of the money transfer. The agent is not therefore liable to any risk on this account.

35. We now proceed to consider the question whether the transactions between the agents and the assessee are under arm’s length. The agreements filed before us show that the “base compensation” is 30 per cent in the case of the Department of Posts and 25 per cent in the case of others. It may be reduced under clause 6.2 of the agreement with the Department of Posts if the assessee were to assume responsibility for the advertising and promotion of the services or to establish a customer service centre to handle customer queries. The reduction shall not exceed 10 per cent of the gross revenues earned by the agent concerned from the money transfer business done by it in the relevant year. In the case of banks appointed as agents, the amount of reduction is left to the determination of the assessee. There is no material to show that the rates of compensation are higher in other cases so as to indicate that the agents were discriminated against. The higher rate of compensation in the case of the Department of Posts is probably because its reach is much wider compared to the commercial banks, NBFCs or tour operators. The terms of appointment of sub-agents are uniform in all cases. Thus there seems to be no basis for the charge that the compensation paid is not adequate for the services rendered by the agents. There is no finding contrary to the claim made by the assessee that the rates of compensation are uniform throughout the world. In these circumstances, there is no merit in the claim that the transactions between the assessee and the agents are not under arm’s length.

36. The result is that (1) the agents are acting in the ordinary course of their business;

(2) their activities are not devoted wholly or almost wholly to the foreign enterprise and

(3) the transactions are under arm’s length. Therefore the agents are independent agents under article 5.5 of the treaty.

37.(B) Are the agents “dependent agents”?

38. It is now well-settled that merely because the agents are not “independent agents” it does not automatically follow that they are “dependent agents” under the DTAA and that the question has to further examined under article 5.4 of the DTAA. In other words, even if the agent is shown to be not an independent agent, it has to be further shown that he is a dependent agent within article 5.4 and that it must be shown that he has and habitually exercises an authority in India to conclude contracts in the name of the foreign enterprise. In TVM Ltd. v. CIT [1999] 237 ITR 230, a decision rendered by the AAR, it has been accepted that when an agent failed to come up to the standard of independence referred to in article 5.5, the issue regarding PE is not closed but has to be resolved in terms of article 5.4. It was further held that the presence of the words “unless his activities are limited to the purchase of goods or merchandise for the enterprise” in clauses (i) and (ii) may suggest a narrower interpretation restricting the article to agents involved in such activity and as saying that mere purchase or sporadic sale of goods through an agent will not be sufficient to merit such an agent being considered a PE, but that this is not the correct view as it would ignore the generality of the preceding words of the paragraph merely because exceptions are carved out in the latter part of the aforesaid clauses only in respect of a particular category of agents (viz., those buying or selling goods). It was held that paragraph 4 of the article “is applicable in all cases where the enterprise in a Contracting State has an agent in the other who does not have an independent status. Such a person will be deemed to be a permanent establishment only if he has, and exercises, the authority to conclude contracts in the name of the enterprise. But even the existence of such authority will not make him a permanent establishment (i), if he is a mere agent for purchase of goods or merchandise; or (ii) being an agent for sale of goods or merchandise is allowed to habitually to maintain a stock of the goods of the enterprise and effect sales therefrom. The conclusion seems inevitable that even a non-independent agent can be deemed to be a permanent establishment only if he can act independently in the matter of concluding contracts on behalf of the principal, on his own, freely and without control from the latter…”. !t is therefore necessary to examine whether the agents in the present case have authority, or habitually exercise authority to conclude contracts for the assessee. Here also, the observations of the AAR in the above case are worth reproducing: At page 242-43 it was noted that paragraph 4 of the article uses two expressions: “has” and “habitually exercises” the authority to conclude contracts on behalf of the foreign enterprise. !t was held that “While the expression “has” may have reference to the legal existence of such authority on the terms of the contract between the principal and agent, the expression “habitually exercises” has certainly reference to a systematic course of conduct on the part of the agent. !f, despite the specific provision of the soliciting agreement, it is found, as a matter of fact that TV! is habitually concluding contracts on behalf of TVM without any protest or dissent, perhaps it could be presumed either that the relevant provisions of the agency contract are a dead letter ignored by the parties or that the principal has agreed implicitly to TV! exercising such powers notwithstanding the terms of the “contract”. The AAR has further observed that this view is reinforced by the Commentary on the OECD Model of Double Tax Conventions as well as the views of text book writers like Klaus Vogel and Baker.

39. !n line with the above, we have to examine the facts of the case to find out first whether the agents have the authority to conclude contracts (on behalf of the assessee). There is no express authority given to them in the agreement and our attention was not drawn to any clause therein to that effect. All that the income-tax authorities have stated is that (a) that the agents carry out in !ndia the commitment given by the assessee to the remitter of the money abroad and (b) that the agents have the power to appoint sub-agents to do their work. From these facts, taken singly or together, it cannot be inferred that the agents either have the authority to conclude the contracts or have habitually exercise the authority without any protest from the assessee. !n paragraph 33 of the commentary referred to in the preceding paragraph, under the heading “Authority to conclude contracts”, it has been stated: “the authority to conclude contracts must cover contracts relating to operations which constitute the business proper of the enterprise. !t would be irrelevant, for instance, if the person had authority to engage employees for the enterprise to assist that person’s activity … “. This paragraph has been quoted approvingly by the AAR in TVM Ltd. ‘s case. Thus the fact that the agents (in the present case) have the authority to appoint sub-agents does not mean that they (agents) have the authority to conclude contracts. The terms of appointment of sub-agents given at page 22 of the paper book as attachment to the contract of agency with Karnataka Bank Ltd. lists the duties and responsibilities of the sub-agents regarding money transfer service requirements, advertising and promotion, exclusivity, locations and hours of operations, payment for the service, delivery standards, maintenance of records, security and confidentiality, accounting, use of software, indemnity, conditions of termination etc. Nowhere in the sub-agency agreement has any authority to conclude contracts has been given to them. !n fact, when the agents themselves have no such authority under their agreement, they cannot delegate the same to their sub-agents (delegates non potest delegare).

40. There is also no material to hold that the agents have “habitually” exercised the authority to conclude contracts. As already noted, the authority must be to conclude contracts in the conduct of the business proper of the foreign enterprise. The fact that the agents conclude in India the commitment of the assessee made abroad cannot be considered as an authority to conclude contracts. The contract is between the remitter abroad and the assessee. It is entered into outside India. The agents are not party thereto. The agents merely carry out the concluding step in the arrangement embodied in the contract. In other words, the assessee undertakes outside India to transfer the money to India. It is only the payment part of the undertaking that is executed by the agents in India. The contract is already concluded outside India. The agent has no say over the contract. He has to merely execute the payment part, after satisfying himself as to the genuineness of the transaction and the identity of the beneficiary in India. By executing the last leg of the contract which has already been concluded (outside India) he is not concluding the contract for the assessee, much less habitually. The appointment of sub-agents is merely to facilitate the work of the agent. That apart, what is considered to be a “duty’; cannot be considered to be an “authority”. By making payment to the beneficiary, the agent in India is only performing his duty under the agreement of agency, for which he is remunerated; he is not exercising any “authority”, certainly not an authority to conclude contracts on behalf of the assessee. The words “duty” and “authority” are incompatible with each other. The dictionary meaning of the word “duty” is “assignment/burden/commitment that one is obliged to do by law or by calling of one’s business”. It connotes an obligation, which a person is bound to perform. Per contra, “authority” in law belongs to the province of power. According to Salmond, “the ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations, either of himself or of other persons must be present ab extra to make a person an ‘authority”‘. Judged by these tests, the fact that the agents in India payout the money to the beneficiaries or claimants, which they are bound to under the agreement with the assessee for which they are remunerated does not appear to us to be a case of exercise of any authority. Thus, the agents do not habitually exercise the authority to conclude the contracts on behalf of the assessee.

41. For the above reasons, we are of the view that there is no agency PE of the assessee in India. In the absence of any PE in India, it follows that the profits, if any, attributable to the Indian operations cannot be assessed as business profits under article 7 of the treaty.

42. Since we have held that there is no PE in India, the question of attributing any income to the same for the purpose of article 7 of the DTAA does not arise. We therefore consider it unnecessary to examine the question whether the attribution of income is fair and reasonable.

43. In the result, we hold that (a) there is business connection and hence the assessee is liable to tax under s. 9(1) of the IT Act; (b) but since there is no PE in India under art. 5 of the DTAA between India and the USA, no profits can be attributed to the Indian operations of the assessee and taxed in India. ”

6.1 As is apparent from the aforesaid findings of the ITAT in the AY 2001 -02, since the agents viz. the Department of Posts of the Government of India, commercial banks, non-banking financial companies and tour operators, have their own or hired premises from which they operate, the ITAT observed that all that these agents in order to show that they were agents of the assessee, was a display board and this could not by any stretch of imagination amount to projection of the assessee in India. The post offices of the Department of Posts ,functioning under the concerned Ministry of the Government of India or the commercial banks or others could not be looked upon as projecting the presence of Western Union Financial Services Inc., in India nor was there any evidence that the assessee could, as a matter of right, enter and make use of the premises of these agents for its business. Accordingly, it was concluded that there was no fixed place PE of the assessee in India within the meaning of article 5.1 of the DTAA. The ITAT further concluded that since i) the agents were acting in the ordinary course of their business; ii) their activities were not devoted wholly or almost wholly to the foreign enterprise and (3) the transactions were under arm’s length, they were independent agents under article 5.5 of the treaty. Moreover, there being no express authority given to the agents in the agreement to conclude contracts on the behalf of the assessee, the ITAT observed that the fact that the agents had the authority to appoint sub-agents did not mean that they (agents) had the authority to conclude contracts. The fact that the agents complete in India the commitment of the assessee made abroad, could not be considered as an authority to conclude contracts. The contract was between the remitter abroad and the assessee and entered into outside India. The agents were not party thereto. The agents merely carried out the concluding step in the arrangement embodied in the contract. The contract was already concluded outside India.. By making payment to the beneficiary, the agent in India was only performing his duty under the agreement of agency, for which he was remunerated; he was not exercising any “authority”, certainly not an authority to conclude contracts on behalf of the assessee. In nutshell, the ITAT held that there was business connection and hence the assessee was liable to tax under s. 9(1) of the IT Act; but since there was no PE in India under Art. 5 of the DTAA between India and the USA, no profits could be attributed to the Indian operations of the assessee and taxed in India.

6.2 The ld. DR contended in his written submissions that the aforesaid decision of the ITAT in the assessee’s own case for the AY 2001-02 was not applicable in the years under consideration on the issue of PE in view of decision of the ITAT in Amadeus Global Travel Distribution SA(supra). We are not inclined to accept this contention of the ld. DR. There is nothing to suggest that the facts and circumstances in the cited decision are similar to the facts and circumstances in the case before us. In the Amadeus case, the issue was as to whether Computer hardware/software provided by the assessee to travel agents in India for booking tickets constituted PE of the assessee in India. In that case, the passenger in India through the travel agent in India, who used the hardware and software system CRS supplied by the assessee for booking tickets in India, approached him for booking ticket. By virtue of the software and communication links the computer at the desk of the travel agent became the interface of the mainframe of the assesse in Germany. The entire equipment (both hardware and software) was supplied to the subscribers at the assessee’s cost through the agency of Amadeus India and the subscriber operated CRS in his office and made the booking by giving necessary commands on his computer and thereby processed information displayed on his screen. In that case, purchase order was made by the subscriber in India; booking was made in India; sale of the ticket by vendors was made in India; and subscriber made the payment in rupees to the branch office of the vendors in India. The ticket ,which was the contract between the passenger and the airlines was made and delivered in India. Thus, income accrued to the assessee as soon as the contract between the subscriber and the vendor was executed in India. The CRS, which was the source of revenue, was found to be partially existent in the machines namely various computers installed at the premises of the subscribers and in some cases, the assessee itself placed those computers and in all the cases the connectivity in the form of nodes leased from SITA were installed by the assessee through its agent and the computers so connected and configured which could perform the functions of reservation and ticketing was a part and parcel of the entire CRS and without the authority of AIPL such computers were not capable of performing the reservation and ticketing part of the CRS system. The computer so installed could not be shifted from one place to another even within the premises of the subscriber, leave apart the shifting of such computer from one person to another. On these facts, the ITAT concluded that the assessee exercised complete control over the computers installed at the premises of the subscribers and this amounted to a fixed place of business for carrying on the business of the enterprise in India. But for the supply of computers, the configuration of computers and connectivity which were provided by the assessee either directly or through its agent AIPL would amount to operating part of its CRS system through such subscribers in India and accordingly, assessee could be said to have established a PE within the meaning of para 1 of art. 5 of Indo-Spain treaty. Besides , the ITAT found that AIPL was dependent agent of the assessee and had authority to conclude contract on behalf of the assessee and in fact, entered into contract with the travel agents in India on behalf of the assessee. Accordingly, the ITAT concluded that the assessee had a PE in India. But such are not the facts and circumstances in the instant case the assessee did not exercise any control over the computer systems which were independently owned by agents and were not provided by the assessee. The activities of the agents were not wholly or almost wholly devoted on behalf of the assessee and that the agents were not ‘dependent agents’ of the assessee nor had they any authority to conclude contracts in India on behalf of Western Union .In the instant case before us, the contract is between the remitter abroad and the assessee and is entered into outside India. The agents are not party thereto. The agents merely carried out the concluding step in the arrangement embodied in the contract. In other words, the assessee undertakes outside India to transfer the money to India and it is only the payment part of the undertaking that is executed by the agents in India. The contract was already concluded outside India, the ITAT concluded in the AY 2001 -02. In view of the foregoing, especially when the Revenue have not even attempted to explain as to how facts and circumstances in the decision relied upon by them are parallel to the facts and circumstances in the case before us, we are of the opinion that the reliance by the ld. DR on the decision of the ITAT in Amadeus Global Travel Distribution SA(supra), rendered in different context and circumstances, is totally misplaced. In this context ,we may refer to the following observations of the Hon’ble Supreme Court in the case of CIT Vs. Sun Engineering Works Pvt. Ltd., 198 ITR 257 :

“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete ” law ” declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC).”

“6. Courts should not place reliance on decisions without discussing as tohow the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid’s theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes

8. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.

9. The following words of Lord Denning in the matter of applying precedents have become locus classicus:

“Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.”

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“Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.”

7. In view of the foregoing and in the light of the view taken by a co-ordinate Bench in identical circumstances, in their aforesaid decision for assessment year 2001- 02, we have no alternative but to uphold the findings of the ld. CIT (Appeals) that the assessee does not have any PE in India. Therefore, ground nos. 1 to 4 in these three appeals by the Revenue are dismissed.

8. Coming now to the ground no.1 raised in the three COs filed by the assessee, the ld. AR on behalf of the assessee did not make any submissions before us on the said ground. We find that issue is squarely covered by para 20 in the aforesaid decision of the ITAT in the assessee’s own case for assessment year 2001- 02. Indisputably, facts and circumstances in the appeals before us being similar to facts and circumstances in the AY 2001- 02, we have no hesitation in upholding the findings of the ld. CIT(A) on this issue also . Therefore, ground no.1 in these three COs is dismissed.

9. As regards ground no. 2,the ld. AR on behalf of the assessee did not make any submissions on this ground. As held by the ld. CIT(A), levy of interest u/s 234B of the Act being consequential in nature, the AO is directed to allow consequential relief, if any. With these observations, ground no. 2 in these three COs is also dismissed.

10. Ground no.3 in the COs being general in nature nor any submissions have been made before us by the ld. AR on this ground while no additional ground having been raised before us in terms of residuary ground no.5 in the appeals of the Revenue, all these grounds are dismissed.

11. No other plea or argument was made before us.

12. In the result, these three appeals by the Revenue and the corresponding COs by the assessee are dismissed.